More pain for borrowers as mortgage fees rise

Mortgage borrowers struggling with falling house prices and strict lending
criteria have been dealt a further blow as research shows that application
fees have risen 13pc in two years.

More pain for borrowers as mortgage fees risePhoto: PA

By Paul Farrow

1:54PM BST 14 Jun 2011

The research coincides with the latest mortgage lending data from the Council of Mortgage Lenders that showed that the amount of home loans had fallen to 40,900 in April from 41,900 a year earlier.

Analysis from moneysupermarket.com shows fees for fixed and tracker mortgage products have increased by over 13pc since September 2009 making it more difficult for borrowers to compare the true cost of mortgages.

The analysis also shows products with the lowest headline rates are not necessarily the best value over the term of the deal. Once fees are factored in, a product with a slightly higher rate but lower set-up costs may actually prove cheaper.

For example, the lowest two-year fixed rate is from Santander at 2.79pc, however, this includes a combined booking and arrangement fee of £1,995, meaning the total amount to be paid back over the two years for someone borrowing £150,000 is £18,676.

The same amount borrowed over two years with Royal Bank of Scotland at a rate of 2.99 and a fee of only £499, would cost £17,552 – a saving of £1,124 over the two year period, despite the interest rate being 0.20 percentage points higher.

Clare Francis, mortgage spokesperson at moneysupermarket.com said: “When looking for a new mortgage, it’s easy to be lured in by low headline rates, however it is vital borrowers take into account arrangement and booking fees as part of the overall cost. The size of the fees can vary greatly, with some providers offering fee-free deals while the set-up costs on other mortgages can run into thousands. It is therefore vital to work out the total amount you’d repay over the term of the offer.”